Wholesale Electricity Spot Market (WESM) and Open Access and Retail Competition (OARC)

7/31/2019 Wholesale Electricity Spot Market (WESM) and Open Access and Retail Competition (OARC)

1/3

Wholesale Electricity Spot Market (WESM) and Open Access and Retail

Competition (OARC)

The Wholesale Electricity Spot Market (WESM) is an avenue for electricity

trading (NAPOCOR, 2002). It is a real-time market for physical delivery of powerwhere sellers can freely bid within certain limits (Nichols, 2010). This said market

currently operates in Luzon and Visayas but its introduction in Mindanao is still

currently being studied (Viray, 2011).

Due to the strict financial and technical requirements of WESM, some

distribution utilities (i.e. electric cooperatives) were unable to become neither a direct

nor indirect member. The present conditions of these DUs can explain this

predicament. Since DUS are characterized by: (1) economies of scale and scope, (2) a

high ratio of sunk costs to avoidable costs, and (3) a broad range of users, they

possess a high ratio of sunk costs to avoidable costs that makes it vulnerable to

administrative expropriation (e.g. regulators setting prices below long-run

replacement costs) and exposes them to risk which forces them to make

disproportionately low (less optimal) investments in services where sunk costs are

high (Patalinghug and Llanto, 2005). This would explain why electric cooperatives in

the Philippines are still operating with significant levels of technical inefficiency

(Brown, de Dios and Valderrama, 2005).

In the context of WESM in the Visayas Region, technical and operational

difficulties are being currently faced because of the observed congestions at the

inter-island submarine cables brought by issues in its local generation (Viray, 2011)

and the archipelagic nature of the country yielding to its high interconnection costs

(Brown, de Dios and Valderrama, 2005).

The possible solutions to this regional transmission problem are investment-

upgrade and amendments to existing market rules and policies in order to mitigate

the impact of technical limitations (Viray, 2011). These can be done by establishing a

legal-regulatory framework that permits capable entities to invest on the required

facilities and expedite operations.


2/3

The Open Access and Retail Competition (OARC) would be a relevant factor for

this because it calls for a simplified and adaptive market for the three industry

segments (i.e. generation, transmission and distribution) which would provide

practical and direct linkage from the generation to the end-users at the minimal cost.

Since most of the utilitys long-term supplies are presently settled in a forwardsmarket through a bilateral contract between the utility and the supplier (Nichols,

2010), its dawn in the industry would better the present relational framework within

the mentioned power segments.

The key player for this institutional framework would be the Retail Electricity

Suppliers (RES) because it is a licensed entity authorized by the ERC to sell, broker,

market or aggregate electricity to the contestable market, in which end-users will

have a choice of a supplier of electricity (Loyola, 2011).

Even though the Energy Regulatory Commission (ERC) declared December 26,

2011 as the open access date to mark the commencement of the competitive retail

electricity market in Luzon and Visayas (Loyola, 2011), the Electric Power Industry

Reform Act of 2001 provides that the introduction of OARC will be gradual; starting

first with end-users with a 12-month average demand of at least 1 MW then coverage

shall be expanded after two years to customers with a 750 kW individual or

aggregated demand. Nevertheless, the Open Access and Retail Competition will still

introduce competition in the retail supply segment of the electric power industry

because RESs can tailor their supply packages to provide customers with the best

value based on their power consumption profile and other preferences (Loyola, 2011).

References:

- NAPOCOR. Wholesale Electricity Spot Market Rules . 2002

- Brown, Geoffrey, Jose Victor Emmanuel A. de Dios and Helena S. Valderrama.Philippines: Power Sector Profile and Roadmap Staff Consultants

Report . (December, 2005)

- Nichols, Nick. Philippine Energy Notes . December 21, 2010

- Viray, Zigfred Nio C. The Philippine Transmission Network and the

- Wholesale Electricity Market (WESM) . October, 2011


3/3

- Loyola, James A. Utilities prepare for open access . June 20, 2011

- Electric Power Industry Reform Act of 2001 (R.A. 9136)

- Patalinghug, Epictetus E., Gilberto M. Llanto. Competition Policy and

Regulation in Power and Telecommunications (DISCUSSION PAPER

SERIES NO. 2005-18) . (August, 2005)

Documents

Wholesale Electricity Spot Market (WESM) and Open Access and Retail Competition (OARC)